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Everything You Need To Know About Friday

Banks (JPM, WFC, C) all beat thanks in no small part to strong fixed income trading results. Yay.

Deutsche Bank won’t be getting a government bailout (or at least that’s what Berlin is saying on Friday). Oh, no.

Money market reform went into effect presumably making the system safer (yay) but removing nearly $1 trillion in unsecured short-term funding from the market and driving up LIBOR with no one really knows what consequences (oh, no).

Yellen spoke in Boston, and here’s Bloomberg’s summary bullets:

Fed Chair Janet Yellen said that “an accommodative monetary stance, if maintained too long, could have costs that exceed the benefits” by increasing the risk of financial instability or undermining price stability.

Benefits and potential costs of pursuing such a strategy “remain hard to quantify,” Yellen said in text of speech Fri. at conference hosted by Boston; “other policies might be better suited to address damage to the supply side of the economy”

Yellen’s comments were made during discussion of how demand may influence aggregate supply; comments on potential costs of easy policy followed suggestion that if strong economy can partially reverse supply-side damage, then policy makers “may want to aim at being more accommodative” during recoveries than would be called for under traditional view

May be “plausible ways” to reverse adverse supply-side effects by temporarily running a “high-pressure economy”

Yellen said that financial crisis and recovery might well prove to have been a “turning point,” as were the Great Depression and 1970s stagflation, by challenging existing views of how economy works and exposing limited understanding of economists

“Urgent” questions for the profession have been raised; pursuing answers to those questions is “vital” to the work of Fed and other policy makers

Questions include whether changes in aggregate demand can have “appreciable, persistent” effect on aggregate supply; post-crisis experience suggests that they may

There’s also need to know more about how inflation expectations are formed, and how monetary policy influences them

More study is also needed in area of how U.S. monetary policy changes impact financial/economic conditions in rest of world

Cites one study that estimates level of U.S.’s potential output is now 7% below what would have been expected, based on its pre-crisis trajectory

“It struck us as completely disingenuous that she really believed a mere two data points (the number of payroll reports between now and December meeting) was really going to convince her that enough slack has been absorbed to greenlight a hike,” RBC wrote this afternoon. “Yellen speech points to more accommodation,” Jeff Gundlach told Reuters, adding that it “suggests [she’s] embraced secular stagnation theory developed by Lawrence Summers.”

Notable Bloomberg News

*WIKILEAKS RELEASES REPORTED CLINTON/GOLDMAN SACHS TRANSCRIPTS

*Syria Talks End Without Result; Lavrov Says Resolution Discussed

*FED'S DUDLEY SAYS HE EXPECTS A RATE RISE THIS YEAR

*Fed Chair Janet Yellen said that “an accommodative monetary stance, if maintained too long, could have costs that exceed the benefits” by increasing the risk of financial instability or undermining price stability.